1948 (7) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether income from the sale of forest trees is "agricultural income" under Section 2(1)(a) of the Indian Income-tax Act, 1922.
2. Whether malikana income is "agricultural income."
3. Whether annuity and interest received represent "agricultural income" and whether the interest portion is assessable to income-tax.

Detailed Analysis:

1. Income from Sale of Forest Trees:
Issue:
Whether income from the sale of forest trees growing on land naturally and without human intervention is "agricultural income" under Section 2(1)(a) of the Indian Income-tax Act, 1922.

Judgment:
The court examined whether the land from which the forest trees were sold was used for agricultural purposes. The primary condition under Section 2(1)(a) and Section 2(1)(b) is that the land must be used for agricultural purposes. The court concurred with the Chief Court of Oudh, the High Court of Madras, and the High Court of Allahabad that the land must show some measure of cultivation, skill, and labor to be considered as used for agricultural purposes. Since there was no evidence of such agricultural use, the income from the sale of forest trees was not considered "agricultural income."

2. Malikana Income:
Issue:
Whether malikana income, given the nature and incidents of the tenure, is "agricultural income."

Judgment:
The court reviewed the facts presented by the Appellate Tribunal and the Chief Court of Oudh, which described malikana as a small annual cash payment retained by the Raja of Utraula due to his historical position as the pargana lord. This payment was fixed by a settlement decree, not variable, and was payable regardless of the land's use or profit. The court agreed that malikana is not agricultural income because it is not rent or revenue derived from the land. Instead, it is a consideration for relinquishment of proprietary claims over the land, and the land is not its source.

3. Annuity and Interest Received:
Issue:
(a) Whether the sum received by the Utraula Estate from the Nanpara Estate represents "agricultural income."
(b) Whether the interest portion of the receipt represents damages or compensation for wrongful withholding of the annuity money and is assessable to income-tax.

Judgment:
The court examined the historical context and present quality of the payments under two documents: a mortgage deed and a lease. The mortgagee (assessee) was in possession of the mortgaged property and leased it back to the mortgagor. The rent received from this lease was considered agricultural income as the land was used for agricultural purposes and assessed to land revenue. The court emphasized that the rent received by the mortgagee in possession is agricultural income, regardless of whether it is applied to principal or interest. The court cited previous judgments to support that agricultural income is exempt from tax, irrespective of the recipient's character.

Conclusion:
The court dismissed the appeals of both the assessee and the Commissioner, affirming that:
1. Income from the sale of forest trees is not agricultural income.
2. Malikana income is not agricultural income.
3. Annuity and interest received by the mortgagee in possession are agricultural income and exempt from tax.

The court advised His Majesty accordingly.